RIMM: Street Split Sharply On The Stock; Avian Cuts Rating (Updated)

By Eric Savitz

Research In Motion(RIMM) shares are trading only modestly higher this morning after an impressive beat-and-raise quarter, as the strong report is offset by weaker-than-expected subscriber growth and continued competitive concerns. The Street’s reaction to the numbers has been mixed: while the bulls were exultant about the fact that RIMM’s death has been much exaggerated, and the contend the stock is simply way to cheap on most metrics, the bears see only a temporary respite from continued market share deterioration in the face of an ongoing onslaught of rival smart phones.

Here’s a rundown on some of the Street commentary on the stock from this morning.

Shaw Wu, Kaufman Bros.: Keeps Buy rating, but cuts target to $72, from $85. “What bothers us most was that its cash balance declined to $2 billion from $3.3 billion last quarter despite $938 million in cash flow from operations, due to $1.5 billion spent on stock buybacks and a $600 million increase in receivables,” he writes. “While we understand the value of buybacks in reducing share count, we are unsure the timing was right and whether it was the best use of cash. In our view, it is sometimes best to build cash.”

Charlie Wolf, Needham: Keeps Buy rating, but cuts target to $75, from $90. “Reports of RIMM’s death are greatly exaggerated,” he writes.

Todd Coupland, CIBC: Repeats Sector Outperform rating and $90 target. “RIMM is tremendously undervalued,” he writes. “A discount to Apple is likely due to competitive questions, but we feel this should narrow as RIMM continues to expand internationally without sacrificing profitability.”

Kevin Hunt, Hapoliam Securities: Repeats Buy rating; ups target to $101, from $100. “We believe the Street is still underestimating the growth potential in smart phones, as well as RIMM’s ability to hold/gain share, especially in international markets,” he writes.

Tavis McCourt, Morgan Keegan: Keeps his Outperform rating and $79 target. “RIMM’s valuation is the theater of the absurd,” he writes, at 7.7x 2010 EPS and 4.3x EV/EBITDA. “But then again the company is only growing its revenues at a 30%+ clip and EPS at 40%+”

Daneil Erst, Hudson Square Research: Keeps his Buy rating and $79 target. “While competition from the iPhone and Android are the clear concerns, we continue to believe that Blackberry remains the gold standard for enterprise, and increasingly appears to be the economic smartphone solution in international markets.

Sanjiv Wadhwani, Stifel Nicolas: Maintains his Buy rating and $65 target. “While we believe that the Torch is off to a modest start in North America, AT&T intends to launch additional campaigns for Black Friday,” he writes. “Additionally, the Torch will launch in 75 carriers globally during the November quarter.”

Tim Long, BMO Capital: Keeps Buy rating and $92 target. “While the press continues to pan the Torch, it is a large reason for the upside as the product is driving new subscribers as well as upgrades.”

Bears:

Matthew Thornton, Avian Research: Cuts rating to Neutral from Positive. “We expect RIMM to have a very difficult time out-innovating Apple and more importantly the Android and possibly the WinMo 7 ecosystems that are likely to show much faster product development cycles,” he writes. But he advises against going negative on the stock, “as valuation is highly supportive and adequately reflects RIMM’s pending challenges in our opinion.”

Scott Sutherland, Wedbush: Repeats Neutral rating; cuts target to $51, from $57. “While Q2 results and Q3 guidance were better than consensus estimates, as we had expected, we continue to have [long-term] concerns regarding increased competition from Android and Apple and weakening enterprise positioning,” he writes.

Colin Gillis, BGC Partners: Keeps his Sell rating and $42 target. “Lackluster new subscriber additions and a strong build up in accounts receivable in the quarter increased our concern of slowing consumer interest and inventory buildup,” he writes.

James Faucette, Pacific Crest: Maintains Sector Perform rating. “We estimate that North American net subscriber additions were close to zero last quarter, and overall U.S. unit sales dropped, albeit likely at a slower rate,” he writes. “We expect stronger growth for RIM internationally, but 2011 will also bring better availability of Android-based devices, which we believe could hurt BlackBerry sales and potentially result in declines such as the ones already seen in the United States.”

Brian Modoff, Deutsche Bank: Repeats Hold rating, but cuts target to $55, from $65. “The company’s outlook depends heavily on their new OS which we expect early next year, but faces serious competitive headwinds, meriting a continued Hold rating,” he writes. “Longer-term we remain highly cautious about the outlook for RIMM. The Blackberry OS is starting to show its age. This has not become apparent to consumers, but will become more so as more smart phones come to market. This Christmas competing smart phones, including those running Android and Windows Phone, will enjoy substantial marketing campaigns and carrier promotions. Without a significant change we think 2011 will prove very difficult for RIMM.”

Pierre Ferragu, Bernstein Research: Repeats Underperform rating and $40 target. “As the handset market goes through profound changes, the company’s corporate business is at risk and we see current growth and profitability in the consumer market as an unsustainable combination,” he writes.

Ehud Gelbaum, Morgan Stanley: Repeats Underweight rating and $47 target. “We calculate that net adds in North America plummeted in the quarter to roughly 300K from over 2 million last quarter, representing just 1% of the North American subscriber base – the lowest level in the history of our model,” he writes. “And with most of our market checks implying that the Torch is appealing far more to existing BlackBerry subscribers than to new ones, we do not believe net adds pick up appreciably in North America next quarter as RIM continues to lose traction at an increasing rate to Apple and Android devices.”

RIMM is up 92 cents, or 2%, to $47.41.

Update: By the close, the stock gave up its entire gain, and then some: for Friday’s session, RIMM fell20 cents, or 0.4%, to $46.29.

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There are 26 comments

SEPTEMBER 17, 2010 11:42 A.M.

James wrote:

Rimm share prices would test the $35 level anytime. It's not that Rim is the most promising smartphone stock in the world. And Apple, Android, and now Microsoft/Nokia are coming on strong like gangbusters.

SEPTEMBER 17, 2010 11:53 A.M.

What a Joke wrote:

All the bears show say the following:
We are discontinuing coverage on RIMM because we clearly don't understand the company. We are absolute morons who don't understand the technology or financial sector. We were wrong, but we will not admit that we were wrong. We are just going to go away and bury our heads in the toilet. We will keep flushing in order to clean all the sh!t out of our heads.

SEPTEMBER 17, 2010 11:54 A.M.

Avian Research wrote:

Is this analyst on drugs? They beat and their guidances blew them out of the water and he lowers his rating. He clearly doesn't understand what's going on. Fool!

SEPTEMBER 17, 2010 11:55 A.M.

Kathy wrote:

Jim Suva really needs to admit that he was wrong. What's wrong with that idiot?

SEPTEMBER 17, 2010 12:03 P.M.

Aholes wrote:

1 word look at all the short Aholes popping up who got burnt. rim killed the quarter and as usual their trying to find something irrelevant to complain about as always. bottom line RIM killed the quarter RIM is not going out of business and we are heading into the holiday soon. so all these short vultures should just pack it up and GO HOME.

SEPTEMBER 17, 2010 12:09 P.M.

Anonymous wrote:

Bear Analysts -
Don't buy Rim! At so point in the misty future, some company will come along and then bang, their business is toast. Someday, someday, ok, I was wrong again this quarter, but someday... Please listen, I need to cover the huge short position I took because I believed the hype. Then I'll change my tune, really...

SEPTEMBER 17, 2010 12:11 P.M.

ljp wrote:

How is any of this surprising? They spent the run-up to earnings declaring RIM dead. It's not like they are going to reverse course in the face of evidence to the contrary. And Eric, you seem to have forgotten that Colin Gillis had a $38 price target. Now you say it's $42. Why didn't you highlight the raise to $42?

SEPTEMBER 17, 2010 3:04 P.M.

jonas pekka wrote:

Thanks for this good summary!
Would be nice to get the same for NOK and AAPL
"If you form the habit of going by what you hear others say about someone, or going by what others think about someone, instead of searching that thing out for yourself and seeing for yourself, you will be walking west when you think you"re going east, and you will be walking east when you think you"re going west. " Malcolm X
ps I think many consumers prefer full keyboard to text ( twitter etc)
Thank you

Rimm just hit a low of $45.97 today, only $3.44 from its current 52-week low of $42.53, and a whopping $7.36 below the previous 52-week low of $53.35 only a couple of weeks ago. And this nonstop drubbing of Rimm share price is coming on the heels of another 'gangbusters' quarterly report by Rim only 24 hours ago, signaling the steady decline of the Rimm share price to the $35 level, but given the giant shadow of an actual shortfall in subs-add expectation, 4.5 million actual versus 5.2 million expected, Rimm share prices are expected to drop through the $35 level, if situation with the India banning Blackberry issue worsens, and continued bleeding of Blackberry customers to the Android and Apple smartphone in double digits, say 57%, then there are no reasons why the Rimm share prices would not drop below the $15 level.

SEPTEMBER 17, 2010 4:39 P.M.

James wrote:

Another key point is Rim's reserves dropping from $3 Billion to $2 Billion. Clearly the previous Rimm share buyback program was a failure depleting 34% of cash from the Rim coffers. Continued Rimm share buyback will almost certainly wipe out any cash reserves of Rim. What shares Rim bought back @ $57. are now worth less than $46. today.

From all perspectives, Rim is running a losing business.

SEPTEMBER 17, 2010 4:40 P.M.

Christopher wrote:

The stupidest winner: Jim Suva of Citigroup.
We talk in 2013 Jim.
So stupid !!!!

SEPTEMBER 17, 2010 4:59 P.M.

James wrote:

The authorities labeled Galileo a heretic...

SEPTEMBER 17, 2010 5:17 P.M.

@James/JamesApple wrote:

Please go back to your doctors. He may be able to stop you from spewing venoms towards RIMM.

SEPTEMBER 17, 2010 5:21 P.M.

Mike wrote:

What happened to those overnight gains? I thought this puppy was off to the races. I was so mad at myself for not getting any yesterday before the close. Just kidding! I wouldn't own this dog stock if someone gave it to me. Even the street doesn't believe all the crap they spewed last night. Wait until the next quarter till you get screwed again RIMM shareholders. Then you can blame it on everyone else.

SEPTEMBER 17, 2010 5:56 P.M.

maria wrote:

I am very to write this, but by accident discoverd what I would call fraud by a very influential techjournalist not Eric Savitz!
the "fraud" is about the Rimm stock , to press the price down. I will inform some influential journalist and perhaps SEC

SEPTEMBER 17, 2010 6:06 P.M.

Dash Ripprock wrote:

Remember this: Gaps are made to be filled. I took a look at RIMM early on today and even had a buy order that I was about to enter. Yo, da earn'ins looked pretty good. Better than estimates and expectations and all dat, but what of that pesky open gap in the chart. I saw how they just bought the thing at the ask after earn'ins came out, and so of course it opened gap up today on all that. But then it was like they were waiting for the foos to rush in cuz they hit it hard just after
it opened gap up. Early today my thinking was just wait for the dust to settle and that gap may well fill before the day is over. Then it will be sitting right on the 20 day moving average and it
will be at a much better buy point, and the gap of course did fill, but all those many buyers today
got hosed. They won't be fooled again, or at least not so quickly or easily. Most of them will hope it comes back up to bail them out, but hope don't count for much in this game. If it drops below 45$ the selling will tank it back to the 52 week lows again, but alas there's that
other open gap in the chart below and to 50$, and that likely also gets filled soon. All these 'anal'-ysts will mull it over all weekend and by Monday morning there's no telling what kind of
garbage they will send out over the wires. Back in the day RIMM would have been up 5$ easily
and they would have bought any dips all day long. This is a different time and what happened
today shows how un-healthy this market really is. Many of the 'apple'-onians believe Apple will
be a 1000$ stock someday, and they even have the China men fooled as they waited in the rain
this morning to pay big yuan for an i-pad. One other thing to remember is that HPQ did buy Palm, and HPQ can get cheap labor to build gadgets as well as anybody. In due time all these
gadgets will be generic items, and Apples' con job of having everybody over pay for their products will also be over. I can't wait to read all the stuff that will come out about RIMM on
Monday. Earnings only matter when they matter, and there's an exception to every rule in the
market. The only sure thing, 99% of the time..., is gaps in the chart will be filled. Good Luck.

SEPTEMBER 17, 2010 10:03 P.M.

analystcoverage.org wrote:

It looks like those analysts who are bullish on RIMM raised their targets while those who are bearish on RIMM lowered their targets. You have to wonder if the earnings had anything to do with it. Sort of like the movie reviewer wanting to get an early night so he writes his review before going to the show.

SEPTEMBER 18, 2010 12:22 A.M.

Mike wrote:

Night time would find me in Maria's cantina, uh.. er.. ??? Oh yeah, it was Rosas' cantina. Hey Maria, go back to Mexico you illegal alien or I'm gonna call INS on you.

SEPTEMBER 18, 2010 12:40 P.M.

maria wrote:

I think it is important that we have a stockmarket that is not ruled by crooks
As I wrote yesterday I have strong proofs that somethinng weird is going on with the rimm stock price. many people will loose money because of that. I have moral.. USA must have moral or we will deteriorate.
MIKE, are you just a teenager? Not a man anyway. Nothing wrong with Mexico

SEPTEMBER 18, 2010 3:00 P.M.

@Maria wrote:

If you are going to chastise someone or something for legal, ethical, or moral reasons, you should demonstrate that you can tow the line you draw. Yes? I have yet to see a complainer here, do so. Saying Mike is not a man is an ad hominem jab. Usually it's self awareness that would understand that. Instead you seem to want Mike, and, people to be aware of your sense of moral superiority; making empty threats only makes it seem more foolish. What do you think? Or should I say, what's your excuse?

SEPTEMBER 19, 2010 2:48 A.M.

Angelo wrote:

Ah señor you see el Bandido leading 3000 donkeys loaded with el Blackberros going from store to store counting them as el sales ? Oh that's very tricky cause the dust raised by the donkeys cover up the tracks as they go around in el circles. I thought I saw el Rocky Mountain in Mexico City but then Lucy told me that's no Rocky Mountain but the pile of unsold Blackberros that came out from el Rim factoros.

SEPTEMBER 19, 2010 2:59 A.M.

To Maria wrote:

Rim frauds are no news. SEC had charged Rim before for frauds many times. There were 4 Rim executives including Lazaridis and Balsillie charged and fined for illegally exercising their options. Check out the fraud cases stacked up against Rim, I think Rim gets at least two new lawsuits against them every day. Crooks indeed.

SEPTEMBER 19, 2010 3:08 A.M.

Marty wrote:

Those Rim crooks fooled me with their phony up gaps sucking up my life savings again only to see the bloody stock drop like a rock the day after they said they made huge sales and profits. What the heck is happening? My money is gone!

SEPTEMBER 19, 2010 3:16 A.M.

Dom wrote:

Hey I made a trillion bucks selling gadgets in the overseas market. My revenue is up 2000% and my EPS is $600. Wanna buy some of my shares? I won't disclose my new subscriptions to you after Christmas.

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